3 COMPANY LAW CHARACTERISTICS OF COMPANY

3 COMPANY LAWCHARACTERISTICS OF COMPANYThe most distinguishing characteristics of a company are following:Mode of Formation or Creation: A company is created when it is registered under the Companies Ordinance, 1984. It comes into being from the date mentioned in the certificate of incorporation.

CHARACTERISTICS OF COMPANYIt may be noted in this connection that Section 14 (1) provides that no association, partnership or company consisting of more than 20 persons be formed to carry on any business for gain unless it is registered as a company, under the Companies Ordinance, 1984 and is deemed to be an illegal association, if it is not so registered.Artificial Legal Person2Artificial Legal Person: A company is an artificial person. Negatively speaking, it is not a natural person. It exists in the eye of the law and cannot act on its own. It has to act through a board of directors elected by the shareholders. Artificial Legal PersonIt was rightly pointed out in Bates v. Standard Land Co. that: The boards of directors are the brains and the only brains of the company, which is the body and the company can and does act only through them.Artificial Legal PersonBut for many purposes a company is a legal person like a natural person. It has the right to acquire and dispose of the property, to enter into contract with third parties in its own name, and can sue and be sued in its own nameSeparate Legal Entity3Separate Legal Entity: This means that a company has a legal entity distinct from and independent from and independent of its members. The creditors of the company can recover their money only from the company and the property of the company. They cannot sue individual members.

Separate Legal EntitySimilarly the company is not in any way liable for the individual debts of its members. The property of the company is to be used for the benefit of the company and not for the personal benefit of the shareholders. On the same grounds a member cannot claim any ownership rights in the assets of the company either individually or jointly during the existence of the company or in its winding up.Separate Legal EntityThe principle of separate legal personality was explained and emphasized in the famous case of Salomon v. Salomon & Co. Ltd. It was held that once the company was incorporated under the Act, it had separate legal entity independent of its members.

Limited Liability4Limited Liability: One of the important advantages of the company is that liability of its members is limited. In the case of a company limited by shares, the liability of members is limited to the extent of the nominal value of shares held by them.

Limited LiabilityIf a shareholder has paid the full nominal value of shares held by him, his liability is nil. This means that a shareholder remains liable to pay the unpaid value of shares, if any.company limited by guaranteeIn the case of a company limited by guarantee, the liability of each member is to contribute a specific amount to the assets of the company in the event of its being wound up while he is a member or within one year of his cease in globe a member.

company limited by guaranteeIn effect, we find that a member is not directly liable to a companys creditors but he is a limited guarantor of the companys debts in both cases.company limited by guaranteeHowever, the Companies Ordinance, 1984 does not prevent the companies from making the liability of its members unlimited. But such companies are very rare.Perpetual Succession5Perpetual Succession: A company has perpetual succession and is independent of the life of its members. Its existence is not affected in any way by the death, insolvency or exit of any shareholder. During the war all the members of one private company, while in general meeting, were killed by a bomb. But the company survived; not even a hydrogen bomb could have destroyed it. L.C.B. Gower, Principles of Modern Company Law, London. Stevens and Sons, (3rd ed.) 1969

Perpetual SuccessionA company can be compared with a river which retains its identity through the parts which compose it are constantly changing. Perpetual succession thus means that in spite of a change in the membership of the company, its continuity is not affected.

Transferable Shares6Transferable Shares: In a public company, the shares are freely transferable. The right to transfer shares is a statutory right and it cannot be taken away by the provision in the articles. However, the articles shall prescribe the manner in which such transfer of shares will be made and it may also contain bona fide and reasonable restrictions on the rights of the members to transfer their shares. But absolute restrictions on the rights of members to transfer their shares shall be ultra vires.

Transferable SharesHowever, in the case of a private company, the articles shall restrict the rights of members to transfer their shares in compliance with its statutory definition.

Common Seal7Common Seal: A company is an artificial person. It cannot act on its own. It acts through natural persons who are known as directors. All contracts entered into by the directors must be under the common seal of the company. The common seal, with the name of the company engraved on it, is used as a substitute for its signature.

Common SealNo document issued by the company shall be binding on it unless it bears the common seal which is duly witnessed by at least two directors of the company.Separate Property8Separate Property: A company has a separate legal personality which is entirely distinct and independent of the persons who constitute it. It has the right to own and transfer property in its own name. The property of the company is to be used for the companys business and not for the personal benefit of its shareholders. Separate PropertyMembers have no direct proprietary rights to the companys property, merely to their shares. It is also important to note that the claims of the companys creditors will merely be against the companys property and not that of shareholders. Large Capital9Large Capital: A public company can raise its large capital by issuing shares and debentures to the public. This large capital gives confidence to the company to excel other companies.

Can Sue & Be Sued10Company Can Sue & Be Sued: As a legal person, a company can sue artificial or natural person in case of the infringement of its rights. As company has a right to sue, similarly it can be sued in case of infringing the rights of other persons.All the above characteristics of the company are also known as merits of incorporation.